Kelly Services, Inc. (KELYA) Q1 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call presents a mixed sentiment. Financial performance shows declining margins and liquidity challenges, but cost-cutting measures and strategic initiatives like technology integration and growth in high-margin areas are positive. The Q&A reveals optimism in demand drivers and structural improvements, but management's vague responses on SG&A reductions and technology impact raise concerns. Given these mixed signals, the stock price is likely to remain stable, resulting in a neutral sentiment prediction.
Key Financial Performance
Revenue $1 billion, down 10.7% year-over-year. Excluding discrete impacts, underlying revenue was down 3.3%. The decline was attributed to reduced demand from the federal government and three top ETM customers.
ETM Revenue Declined 0.4% year-over-year on an underlying basis. This was an improvement compared to the previous quarter. Growth was seen in Talent Solutions specialties, while staffing saw a net underlying decline of 1.2%.
Education Revenue Decreased 4.8% year-over-year. The decline was due to delayed new contract decisions, weather-related school closures, and enrollment declines in key markets.
SET Revenue Declined 6% year-over-year on an underlying basis. The decline was primarily due to near-term demand pressure within the technology specialty.
Gross Profit $196.4 million, down 17% year-over-year. The gross profit rate was 18.9%, a decrease of 140 basis points compared to the prior year. The decline was attributed to lower revenue volume, employee-related costs, and business mix changes.
SG&A Expenses $199.3 million, down 11.7% year-over-year. Adjusted SG&A expenses decreased 10.3%, reflecting structural and volume-related cost optimization efforts.
Adjusted EBITDA $15.8 million, with an adjusted EBITDA margin of 1.5%, down 150 basis points year-over-year. The decline was driven by revenue and gross profit declines, partially offset by SG&A reductions.
Cash from Operations Utilized $25.4 million in the quarter due to timing of working capital requirements.
Total Available Liquidity $252 million, comprising $26 million in cash and $226 million available on credit facilities.
Total Borrowings $130.5 million, reflecting working capital needs during the quarter.
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Operating Highlights
Helix analytics platform and AI-enabled rate intelligence: Kelly introduced a significant MSP program with a leading global oil and gas company across its North American operations. The program leverages the Helix analytics platform and AI-enabled rate intelligence for visibility, benchmarking, and cost optimization.
Unified CRM system: Kelly is migrating all commercial teams onto a new unified CRM system to provide enterprise-wide pipeline visibility, enable high conviction forecasting, and support cross-selling across business units. The migration is expected to be complete by mid-year.
New MSP program with a global oil and gas company: Kelly secured a significant MSP program with a leading global oil and gas company, showcasing its technology-enabled capabilities and opening opportunities for further expansion.
Technology modernization: Kelly is progressing with its multi-phase technology modernization journey, including transitioning acquisitions to a modernized platform and leveraging AI and automation for enhanced productivity.
Cost optimization: Kelly achieved a 10.3% year-over-year reduction in adjusted SG&A expenses through structural and volume-related cost optimization efforts, including leveraging AI.
Formation of growth office: Kelly established a growth office in February to create an integrated commercial operating framework and enhance its go-to-market strategy as a unified enterprise.
Leadership changes: Joel Leege was appointed as President of SET, bringing extensive experience in staffing, talent solutions, and managed services to enhance SET's competitive positioning.
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Risk or Challenges
Macroeconomic Environment: Dynamic macroeconomic conditions and cautious hiring approaches by employers could impact revenue and growth.
Education Segment: Pressure from delayed contract decisions, enrollment declines, and weather-related school closures negatively affect performance.
Technology Specialty in SET: Near-term demand pressure within the technology specialty segment is causing revenue declines.
Federal Government Demand: Reduced demand from the federal government has impacted revenue, though it has stabilized recently.
Top ETM Customers: Revenue declines due to reduced demand from three top ETM customers, with one fully running off.
Gross Profit Rate: Decline in gross profit rate due to lower revenue volume, employee-related costs, and business mix changes.
SG&A Expenses: Structural and volume-related cost optimization efforts are ongoing, but investments in technology and growth initiatives could strain resources.
Technology Modernization: Challenges in transitioning acquisitions to a modernized platform and ensuring smooth integration.
Real Estate Rationalization: Costs associated with real estate rationalization efforts could impact financials.
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Guidance & Outlook
Revenue Growth: The company expects modest revenue growth in the second half of 2026, with a mid-single-digit decline on a full-year basis. Sequential year-over-year improvement is anticipated each quarter in 2026.
Adjusted EBITDA Margin: The company projects measurable year-over-year margin expansion in the second half of 2026 and a modest increase on a full-year basis. For Q2, adjusted EBITDA margin is expected to be at least 2.5%, representing at least 100 basis points improvement relative to Q1.
Education Segment Performance: The Education segment is expected to deliver sequential year-over-year improvement throughout the remainder of 2026 and return to growth in the second half of the year due to new business wins, key renewals, and penetration of therapy offerings.
SET Segment Performance: Sequential year-over-year improvement is expected each quarter in 2026, with science, engineering, and technology contributing most strongly in Q2.
Technology Modernization: The company remains on track with its multi-phase technology modernization initiative, including the migration of commercial teams to a unified CRM system by mid-year 2026. This is expected to enhance pipeline visibility, forecasting, and cross-selling capabilities.
Cost Optimization: The company projects a net year-over-year decline of approximately $25 million in core SG&A expenses for 2026, despite investments in technology and other areas. Structural changes are expected to support margin expansion in the second half of the year and beyond.
Market Conditions: The company assumes no material change in macroeconomic or industry dynamics for the remainder of 2026.
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Shareholder Return Plan
Quarterly Dividend: Maintained at $0.075 per share.
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Key Q&A
Q:Can you discuss the $25 million in core SG&A reduction efforts and their timing?
A:The company has been focusing on reengineering its cost base and matching resources with demand. Actions began last year and accelerated in the latter part of the year. The reductions are a result of integration efforts, including consolidating acquisitions and implementing a new technology platform. The company expects sequential incremental improvement in EBITDA margin throughout the year.
Q:What are the timing and milestones for the technology activity and ERP implementation?
A:The next phase is expected in the beginning of Q4 2023, migrating to a broader enterprise platform. This includes consolidating acquisitions and migrating enterprise human capital management. The company is also deploying a HubSpot CRM in Q2 2023 to consolidate CRMs across business units, aiming for enterprise-wide pipeline visibility.
Q:What are the demand drivers from customers, particularly in technology?
A:The company is seeing encouraging signals, including a net positive consultant count improvement in March and similar tracking in April. There is strong demand in the telecom and data center spaces, driven by the need for total talent management solutions and technical support for investments in the U.S. and globally.
Q:How is Kelly structurally different today compared to prior downturns?
A:Kelly has gained scale and capability in specialized areas like technology and RPO through acquisitions. The company now offers a leading total talent management solution and is focusing on better execution and customer-centric approaches. The establishment of a growth office is part of this strategy.
Q:What is the incremental earnings power as the industry returns to growth?
A:The company expects margins to be back above 3% in the second half of 2023, with further expansion as growth continues. Cost reductions have been net of investments in growth areas, allowing for efficient scaling.
Q:Can you clarify the core SG&A expenses and their trajectory for the year?
A:Core SG&A expenses are expected to flatten out at around $192 million per quarter for the rest of the year. This excludes performance incentives, which are expected to increase by $20-$25 million year-over-year, depending on performance.
Q:What is driving gross margin improvement throughout the year?
A:Gross margin improvement is driven by a pivot to growth in higher-margin areas, timing of expenses, and a slight increase in perm fees, particularly in SET. The company expects continued improvement in gross margins and EBITDA margins.
Q:How significant is the impact of lower student enrollment in the Education segment?
A:The impact is temporary and concentrated in Florida due to weather-related closures and budget constraints. Demand has stabilized, and the company is focusing on expanding its K-12 substitute management and therapy services.
Q:What are the organic growth drivers and the strength of the pipeline?
A:The growth office is implementing a commercial operating framework, aligning incentives, and improving pipeline management. The pipeline is strong in total talent management solutions, telecom, engineering, technology, and K-12 staffing, with notable wins like a large oil and gas client.
Q:What have the Hunt companies brought to the table so far?
A:The Hunts have expressed support for the management team and strategic direction. There has been no change to the business strategy, client relationships, or operational approach. New board members with extensive experience have been nominated to support strategic execution.
Q:How have the early days of the new Chief Growth Officer, Pat McCall, been?
A:Pat McCall has been focusing on setting the foundation for a commercial operating framework, including stronger account planning and pipeline management. The goal is to present Kelly as one global enterprise to large customers.
Q:Review of Unclear Management Responses
A:Management avoided directly addressing the specific timing and detailed breakdown of the $25 million SG&A reduction efforts, as well as the exact impact of the new technology platform on operational efficiency. Additionally, the response to the question about the Hunt companies' contributions was vague, focusing on general support rather than specific actions or outcomes.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI
BU
CRM
ETM
Education
Joel
MSP
SET
approach
charge
commitment
contract decision
core SGA
decline basis
decline core
decrease
education improvement
engineering
enrollment decline
enterprise
estate
experience
framework
government
impact
improvement decline
migration
modernization journey
office
optimization
point decline
pressure light
remainder
return margin
science
specialty
staffing
strength culture
talent
technology modernization
trend
visibility
weather
KELYA Transcript
Kelly Services, Inc. (KELYA) Q1 2026 Earnings Call Transcript
Unknown5-7
The earnings call presents a mixed sentiment. Financial performance shows declining margins and liquidity challenges, but cost-cutting measures and strategic initiatives like technology integration and growth in high-margin areas are positive. The Q&A reveals optimism in demand drivers and structural improvements, but management's vague responses on SG&A reductions and technology impact raise concerns. Given these mixed signals, the stock price is likely to remain stable, resulting in a neutral sentiment prediction.
Kelly Services, Inc. (KELYA) Q4 2025 Earnings Call Transcript
Unknown2-12
The earnings call summary reveals several negative indicators: a decline in revenue and gross profit, reduced demand from key sectors, and a drop in adjusted EBITDA margin. Despite some positive aspects like cash flow improvement and AI opportunities, the Q&A section highlights ongoing demand pressures and margin challenges. The strategic plan mentions future revenue and margin pressure, further supporting a negative outlook. Given these factors, the stock price is likely to experience a negative reaction, falling between -2% to -8%.
Savaria Corporation (SIS:CA) Q3 2025 Earnings Call Transcript
Positive11-6
The earnings call reveals strong financial performance, with reduced finance costs and improved leverage ratio. Despite a projected revenue decline, the company maintains strong margins and operational efficiencies. The Q&A highlights positive sentiment from analysts, with no significant macroeconomic impacts or price sensitivity observed. The focus on acquisitions, strategic growth, and maintaining shareholder returns further supports a positive outlook. However, the lack of detailed guidance on some initiatives and product-level data slightly tempers the positivity.
Kelly Services, Inc. (KELYA) Q3 2025 Earnings Call Transcript
Unknown11-6
The earnings call reveals declining revenues across multiple segments, a significant drop in adjusted EBITDA, and reduced gross profit. Although there are efforts to leverage AI and operational efficiencies, the short-term impact is minimal. The Q&A highlights concerns about revenue concentration, macroeconomic challenges, and unclear management responses on certain risks, which further dampens sentiment. Despite some cash flow improvements and strategic initiatives, the overall outlook is negative, with potential stock price decline due to weak financial performance and uncertainty.
KELYA Slides
KELYA Report
Frequently Asked Questions
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